CST Brands’ 4Q profit falls 28 percent as merger with Circle K nears

Kim Lubel, president and CEO of CST Brands Inc., will leave the company after it completes its $4.4 billion merger with Alimentation Couche-Tard Inc., the Canadian parent company of Circle K.

Kim Lubel, president and CEO of CST Brands Inc., will leave the...

CST Brands Inc.’s profit tumbled 28 percent in the fourth quarter as it nears the completion of a merger with the Canadian parent company of Circle K.

The $4.4 billion merger between the San Antonio-based convenience store operator, which runs the Corner Store brand of stores, and Quebec-based Alimentation Couche-Tard Inc. “is on track to close during the second quarter 2017,” Kim Lubel, CST Brands chairman and CEO, said in a news release Monday.

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Couche-Tard agreed in August to buy CST after a months-long courting period for $48.53 a share in an all-cash transaction and assume the company’s debt. The sale was approved with 99.7 percent of the vote among shareholders who attended a November meeting at CST’s headquarters.

CST fell short of analyst projections in its fourth-quarter earnings report Monday. The company saw $18 million in net income, or 23 cents per share, during the three-month period ending Dec. 31 — less than the $25 million, or 34 cents a share, in net income the company made during the same period last year.

Analysts had projected CST would make about $27.9 million in net income, or 36 cents a share.

CST attributed the decline in profit to a 25 percent decrease in motor fuel gross profit at its U.S. stores. The company said Monday it saw stronger fuel margins during the same period in 2015.

Overall, CST made 16.3 percent less from fuel sales at its stores in the U.S. and Canada than last year, earning $123 million during the fourth quarter compared with $143 million during the same period last year.

But, the convenience store operator reported stronger sales of merchandise and services than last year. CST has sought to beef up its in-store offerings, including fresh food and grocery items, to offset losses from fading cigarette sales and volatile oil prices. Those efforts appear to be paying off with a 16.9 percent bump in year-over-year gross sales from $142 million in 2015 to $166 million in 2016.

Overall, the company’s fourth-quarter revenue grew 12.7 percent to almost $2.4 billion from $2.1 billion last year, but still didn’t beat analyst expectations of almost $2.5 billion.

CST didn’t hold an earnings call, but Lubel said in a statement that 2016 was a “year of significant growth and change” for CST, citing the San Antonio-based company’s $300 million acquisition of Georgia-based Flash Foods and its 165 stores in Florida and Georgia in February, the construction of 50 new stores in the U.S. and Canada and shareholders’ November vote to greenlight the company’s merger with Couche-Tard.

The company ended the year with $136 million in cash on hand, down 56.4 percent from $313 million at the end of 2015.

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CST had reportedly weighed takeover bids by Seven & I Holdings, the Japan-based owners of 7-Eleven, along with a consortium of private equity firms, including Blackstone Group and Apollo Capital Management. Japanese convenience store chain Lawson Inc., and Ohio-based companies Marathon Petroleum Corp. and TravelCenters of America had also expressed interest in buying the San Antonio company, Wells Fargo analyst Bonnie Herzog has said.

An Express-News analysis of CST’s SEC filings found that the top four executives could take home up to a combined $37 million in connection with the sale.

Lubel stands to gain the largest payout among executives under the merger, which would trigger change-in-control provisions granting her almost $19.2 million in salary payments, shares, bonuses, health insurance, restricted stock and options if she leaves or is terminated within two years of the merger.

CST Chief Financial Officer Clayton Killinger would snag the second-highest payout with almost $9.1 million in salary payments, accelerated stock awards and other payments under the same circumstances. Chief Operating Officer Anthony Bartys could earn almost $4.7 million, and Chief Marketing Officer Hal Adams could get almost $4.1 million if they leave or lose their jobs.